Assignment:
Perform a financial statement comparative analysis between Microsoft and Google. Answers should show all calculations using Excel and be thoroughly discussed.
Equired Reading:
- 2016 R June Financial Statement Analysis Power Point with notes
- 2016 July DMBA R Sample Week 3 Answer
- Research Starters: Financial Ratios" posted in this week's Content Module
Required Multimedia:
- The Cash Flow Statement
- Cash Flow Ratios
- Market Ratios
Recommended Support Materials:
For a "how to" explanation of Financial Statement Analysis: see the attached Power Point file 2016 R June Financial Statement Analysis and the Word file, "Diagram of Financial Ratios."
Assignment Financial Statement Analysis:
Your team has been assigned to the CEO of a major company. The CEO keeps an eye on the competition, and asks your team to do the following: Following the 2016 R DMBA Sample Week 3 Answer, research current year data for two selected firms, and use ratio analysis to compare these two major competitors in the same industry and compare them to the most current data for industry ratios. The sample compares Southwest Airlines Company with Jet Blue Airline Company.
Instructions:
- Pick any two U.S. public companies in the same industry.
- One of the two companies can be the same company someone on the team used in Week 2.
- Select the 10 most important financial ratios for the two companies and calculate each for the last 2 fiscal years using Excel.
- Follow the format of the example 2016 July DMBA R Sample Week 3 Answer for 2 airlines. This is also separately posted in this week's content module. Use the "Compare" worksheet. Note: It is not necessary to complete all ratios
- Explain how each ratio was calculated in your own words
- Explain the significance of the answers found.
1. Create a single Excel file for your entire assignment.
2. The team may obtain financial information and the companies' latest annual reports on the web directly from the Securities and Exchange Commission for the company website. MSN Money or Yahoo Finance also have information but in some situations it may be incomplete. Current stock price information is not available from the SEC web site.
3. The team should calculate, and comment upon, at least 10 financial ratios for the last 2 fiscal years.
4. All calculations should be shown, and all answers should be thoroughly explained.
5. It is useful to compare financial ratios for a company with financial ratios of its industry. Industry financial ratios can be found on Morningstar.com, Yahoo Finance and MSN Money and https://www.bizstats.com/corporations.asp?profType=ratios
6. Whenever the team uses balance sheet items to calculate ratios, it is more accurate to average the beginning-of-year and end-of-year amounts to get the average for that year. Dec 31, 2014 and Dec 31, 2015 would be beginning and end of year for 2015. Note: Averaging is NOT required. For some students taking averages leads to calculation mistakes. The example answer does not use averaging and includes most if not all possible ratios.
7. What can the team tell from the analysis? What are the strengths and weaknesses of each company? Which is the stronger competitor? Give reasons.
8. Show that you have read and understood the required readings, links and attached files - cite and reference them where appropriate.
9. The final Excel file should be submitted by one team member into the Group Assignment folder.
The 2016 R DMBA Week 3 sample answer file contains a comprehensive analysis of the financial statements of two large airline companies. It illustrates and explains how different companies succeed by focusing on different key ratios like Net Income/Sales, or Sales/Total Assets (asset turnover) or Total Assets/Common Equity (leverage). Also, it further explains how these different strategies are revealed through DuPont Analysis (a powerful technique that many companies use to devise, implement, and monitor their business strategies.
It shows the source for every number on every Excel worksheet: just click on any number in any Excel worksheet and you will see where it comes from. Showing the source for every number on every Excel worksheet is very important and helpful to readers, and you should do this on all of your Excel spreadsheets.
All of the data in the example comes from SEC interactive data. Under the company name in interactive data is a small red link that says view excel document. All numbers in this document are easy to use in calculations. Data copied from some other sources may not calculate correctly in Excel.
These assignments are designed to help you to develop your analytical ability and your ability to explain your analysis in words. There are many uses for financial statement ratio analysis, especially in business strategy - for an example, see the "Strategic Control Map" developed by McKinsey & Company, the well-known international strategy consulting firm by clicking here:
Attachment:- Financial Ratio.zip